Finlan v. Chase ( 2021 )

Filed 9/15/21
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
KIMBERLY FINLAN, D078410
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2014-00036134-
CU-PO-NC)
MICHAEL CHASE,
Defendant and Appellant.
APPEAL from an order of the Superior Court of San Diego County,
Earl H. Maas, III, Judge. Affirmed in part and reversed in part.
Konoske Akiyama & Brust, Gregory P. Konoske, D. Amy Akiyama and
Megan K. Hawkins for Defendant and Appellant.
Ritter & Associates, Dwight Ritter and Karen Albence for Plaintiff and
Respondent.
As experienced litigators know, an offer from the opposing party to
compromise pursuant to Code of Civil Procedure section 998 should be
carefully reviewed, because if it is not accepted and trial produces a less
favorable result, offerees might be penalized for their earlier reticence to
settle by being required to pay certain litigation costs of their opponents.1
But offerors must exercise caution as well, and take particular care that their
offers meet all of the requirements enumerated in section 998. One such
requirement is the inclusion of an acceptance provision that gives offerees
instructions on how to accept an offer if they choose to settle.
In this case, we consider whether a simple reference to section 998
satisfies the acceptance provision requirement. We conclude it does not,
based on settled caselaw. We further determine that a valid acceptance
provision requires more than mere reference to a judgment; section 998 offers
must provide some kind of instruction or indication as to how they can be
accepted, utilizing a written acceptance that includes a signature from the
offeree’s counsel or the unrepresented offeree. Accordingly, the section 998
offers in this case were not statutorily valid, and we reverse the court’s
postjudgment order to the extent it allows plaintiff Kimberly Finlan to
recover costs and interest that could only be awarded based on defendant
Michael Chase’s failure to accept a legitimate section 998 offer.
FACTUAL AND PROCEDURAL BACKGROUND
Chase sexually assaulted aesthetician Finlan during a facial treatment
session at a resort spa. Finlan sued Chase, and in the course of litigating her
personal injury action, she sent multiple letters offering to settle for
$999,000.2 The letters stated that her offers were made pursuant to section
1 All further statutory references are to the Code of Civil Procedure
unless otherwise designated.
2 Finlan and Chase are not in agreement that Chase received all three
settlement letters Finlan apparently sent—but he received at least two. The
dispute is immaterial because the letters were all substantially the same,
apart from minor corrections of typographical errors. We treat the letters
collectively as Finlan’s offers and find no need to differentiate them.
2
998, but said nothing about how the offers were to be accepted.3 Chase did
not respond to these offers. Finlan then prevailed at trial, receiving an
award of $3,875,000.
A judgment, which included an award of prejudgment interest, was
entered in Finlan’s favor. She also moved to recover various costs. Chase
responded with a motion to tax Finlan’s costs, arguing in particular that she
was not entitled to recover expert witness fees because her section 998 offers
failed to include an acceptance provision, making them statutorily invalid.
He further moved to strike the award of prejudgment interest based on the
same argument—that the 998 offers were unenforceable.
After considering supplemental briefing on the section 998 issue and
hearing oral argument, the trial court ultimately concluded that Finlan’s
offers were valid. Acknowledging the statutory requirement that an offer
must include an indication on how it can be accepted, the court nonetheless
thought Finlan’s offers “w[ere] not silent as to how [they were] to be accepted
because they “explicitly referr[ed] to [§ 998]” and thus “encompassed the
provisions of that statute.” In the court’s view, this “incorporation by
3 In their entirety, Finlan’s offers read as follows (errors have been
corrected with brackets):
“Pursuant to Section 998 of the California [Code of Civil Procedure],
Plaintiff KIMBERLY FINLAN, offers to settle the Complaint against
defendant MICHAEL CHASE for the sum of nine hundred and ninety-nine
thousand dollars ($999,000.00), paid by said defendant MICHAEL CHASE
and to allow judgment to be entered in favor of said plaintiff, in the sum of
[nine hundred and] ninety-nine thousand dollars ($999,000,00).
This offer is made pursuant to Section [998] of the California [Code of
Civil Procedure], if such offer is not accepted within 30 days after it is made,
it shall be deemed withdrawn. In the event this Offer of Compromise is not
accepted by the said defendant, defendant is hereby advised that after
verdict, Plaintiff intends to seek a reasonable sum to cover costs of expert
witnesses, interest at the rate of ten percent (10%) per annum from the date
hereof, together with all other costs as provided in Section 998.”
3
reference” was enough to satisfy the statutory requirement that the offers
contain an acceptance provision. (§ 998, subd. (b).) Although for different
reasons it granted Chase’s request to tax certain costs, the court awarded
Finlan the largest category of expenses she claimed—expert witness fees—
and denied Chase’s motion to strike the prejudgment interest, basing both
rulings on its conclusion that Finlan’s section 998 offers were effective.
DISCUSSION
The only issue before us is whether Finlan’s offers to settle were valid
under section 998—a determination that turns entirely on whether the offer
letters contained the required acceptance provision. Chase argues the trial
court erred in determining that a simple reference in the offer to section 998
satisfied this requirement. And although Finlan’s assertion on this point
convinced the trial court, she tellingly pivots to another position on appeal—
that a brief reference in her letters to allowing “judgment to be entered”
provided implicit instructions about acceptance.4
As we will explain, neither the trial court’s reasoning nor Finlan’s
alternate theory provides a basis on which we could affirm. If the trial court’s
incorporation-by-reference approach were sufficient to constitute an
acceptance provision within the meaning of section 998, then the
Legislature’s 2006 modifications to subdivision (b) adding that requirement
would be rendered meaningless. And holding that a simple mention of a
“judgment” satisfies the statutory provision would create the same problem.
Because no part of Finlan’s letters provides instructions on how Chase could
have accepted, they were not valid section 998 offers. We accordingly reverse
the trial court’s postjudgment order with directions to enter a new order that
4 Contrary to Chase’s assertion, Finlan did make this argument in her
supplemental brief before the trial court, and as such it was preserved.
4
(1) omits the award of Finlan’s expert witness costs, and (2) strikes the award
of prejudgment interest included in the judgment.
We begin with some background discussion of section 998 and the
acceptance provision requirement. Generally, a party’s “right to recover costs
is derived solely from statutes. In the absence of statutory authority, each
party must pay his or her own costs. [Citation.] The general rule allowing
recovery of costs is found in section 1032 [but]. . . . ‘[s]ection 998 modifies the
general rule’ ” (Perez v. Torres (2012) 206 Cal.App.4th 418, 421 (Perez)) by
“establish[ing] a procedure for shifting the costs upon a party’s refusal to
settle.” (Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 798.) As
pertinent here, when a defendant refuses a plaintiff’s section 998 offer “and
thereafter fails to obtain a more favorable judgment, (1) the trial court may,
in its discretion, require the defendant to pay the reasonable postoffer expert
witness fees . . . (§ 998, subd. (d)), and (2) the judgment against the defendant
in any personal injury action shall accrue prejudgment interest at the rate of
10 percent per annum from the date of the offer (Civ. Code, § 3291).”
(Rouland v. Pacific Specialty Ins. Co. (2013) 220 Cal.App.4th 280, 285
(Rouland).)
In 2006, the Legislature added language to section 998 that is at issue
in this case. This language requires that settlement offers include “a
provision [allowing] the accepting party to indicate acceptance of the offer by
signing a statement that the offer is accepted.” (§ 998, subd. (b), as amended
by Stats. 2005, ch. 706., § 13.) This amendment further provided that “[a]ny
acceptance . . . shall be in writing and shall be signed by counsel for the
accepting party or, if not represented by counsel, by the accepting party.”
(§ 998, subd. (b).) The purpose of this addition was to “eliminate uncertainty
by removing the possibility that an oral acceptance might be valid.” (Puerta
5
v. Torres (2011) 195 Cal.App.4th 1267, 1273 (Puerta).) We refer to this
addition as section 998’s acceptance provision requirement.
Although this requirement became effective in 2006, Puerta was
apparently the first case to construe the new language. The offer at issue in
Puerta undeniably “did not include any provision regarding acceptance; it
simply offered a waiver of costs in exchange for dismissal, and stated the
offer would remain open for 30 days.” (Puerta, supra, 195 Cal.App.4th at
p. 1271.) Employing “fundamental principles of statutory construction,” the
Puerta court reasoned that “at least some indication of how to accept is
required by the amendment” and found the offer in that case invalid. (Id. at
pp. 1272–1273.) Puerta thus established a commonsense rule derived from
the plain language of subdivision (b) that section 998 offers must provide the
offeree with some instruction on how to accept in order to satisfy the
acceptance provision requirement.
But Puerta did not address the more difficult question posed in
Rouland, supra, 220 Cal.App.4th 280, of whether an offer is valid if it gives
instructions for acceptance, but fails to provide a clear place for counsel (or an
unrepresented party) to sign in order to fulfill the more granular
requirements for a valid acceptance. (§ 998, subd. (b) [any acceptance must
be “in writing” and “signed”].) The offers5 in Rouland stated, “ ‘If you accept
this offer, please file an Offer and Notice of Acceptance in the above-entitled
action prior to trial or within thirty (30) days after the offer is made.’ ”
(Rouland, at p. 283.) There was no further indication that the acceptance
needed to be in writing or signed by the offeree’s attorney.
5 As in this case, Rouland involved multiple settlement letters.
(Rouland, supra, 220 Cal.App.4th at p. 283.)
6
From its survey of the relevant caselaw (including Puerta, supra, 195
Cal.App.4th 1267), Rouland distilled the principle that “failure to follow
section 998’s acceptance provision requirement invalidates the offer.”
(Rouland, supra, 220 Cal.App.4th at p. 286.) Even so, the Rouland court
commented that these decisions “do not provide clear guidance on how to
satisfy that requirement.” (Ibid.) And while it made clear “no ‘ “magic
language” ’ or specific format is required for either an offer or acceptance
under section 998,” Rouland also explained that, at a minimum, the “offer’s
acceptance provision simply must specify the manner in which the offer is to
be accepted,” and these instructions must necessarily incorporate “a written
acceptance signed by the accepting party or its counsel” according to the
terms of section 998, subdivision (b). (Rouland, at p. 288.)6
Applying these principles to the offers before it, the Rouland court
concluded that they “satisfied section 998’s acceptance provision requirement
because they informed the Roulands how to accept the offers (file an ‘ “Offer
and Notice of Acceptance” ’ with the trial court) and the identified means of
acceptance satisfied the statute’s requirements for a valid acceptance (a
writing signed by the Roulands’ counsel).” (Rouland, supra, 220 Cal.App.4th
at p. 288.) Although the court “recognize[d] the offers did not expressly
require a written acceptance signed by the Roulands’ counsel,” it reasoned
that the “requirement [was] implicit in the offers’ identified means of
acceptance because any acceptance the Roulands sought to file with the court
necessarily would have to be in writing and signed by their counsel.” (Ibid.)
Rouland’s holding thus approved of acceptance provisions in 998 offers that
6 The Rouland court applied de novo review to determine if the offers
before it contained a valid acceptance provision under section 998, and we do
the same because the terms of Finlan’s offers are undisputed. (Rouland,
supra, 220 Cal.App.4th at p. 285.)
7
provide clear instructions on how to accept by means that would necessarily
involve the offeree’s written acceptance and signature. This is all that the
Rouland court meant when it stated that “the steps for completing the
acceptance may be implicit in the identified means of acceptance.” (Rouland,
at p. 288.)
The trial court in this case seems to have misconstrued the scope of the
“implied” means of acceptance approved in Rouland. After discussing that
case, the court concluded that Finlan’s offers were “not silent as to how [they
were] to be accepted” because they “explicitly referr[ed] to [§ 998]” and, in
doing so, “encompassed the provisions of that statute which state that
acceptance shall be made either in writing on the offer or in a separate
document and shall be signed by counsel for the accepting party [(§ 998, subd.
(b))].” But subdivision (b) provides instructions to the offering party about
what a written offer must contain, including some direction to the offeree as
to how to accept, and the necessary conditions of a legally valid acceptance.
A mere reference to the code section cannot supply an acceptance provision
that would otherwise be entirely missing, and Rouland in no way suggests
that it can.
Furthermore, a rule that the acceptance provision could be satisfied by
a simple reference to section 998 alone would undermine the particulars
listed in subdivision (b) by the Legislature, and contravene the fundamental
principle of statutory interpretation that “[c]ourts should give meaning to
every word of a statute if possible, and should avoid a construction making
any word surplusage.” (Arnett v. Dal Cielo (1996) 14 Cal.4th 4, 22.) Of equal
concern is that such a rule would undermine the numerous and consistent
prior decisions holding that section 998 offers must contain an explicit
acceptance provision. As this court has succinctly observed, “It is well settled
8
that if an offer fails to include an acceptance provision, the offering party may
not obtain the benefits of [section 998].” (Bigler-Engler v. Breg, Inc. (2017)
7 Cal.App.5th 276, 331 (Bigler-Engler).)
Although no party in these prior cases made the incorporation-by-
reference argument advanced by Finlan here, we can infer that most—if not
all—of the scrutinized offers contained some reference to section 998, but
were nonetheless statutorily invalid because they lacked clear acceptance
provisions. (See Bigler-Engler, supra, 7 Cal.App.5th at pp. 285, 331
[concluding that a “pretrial settlement offer under Code of Civil Procedure
section 998” that lacked an acceptance provision was invalid]; Perez, supra,
206 Cal.App.4th at pp. 421, 425 [analyzing “a section 998 offer to settle”
without an acceptance provision and adopting “a bright-line rule invalidating
an offer when it omits an acceptance provision, or any other statutorily
required provision”]; Boeken v. Philip Morris USA Inc. (2013) 217
Cal.App.4th 992, 996, 1004 (Boeken) [plaintiff who “served on [defendant] an
offer to allow judgment under section 998” without an acceptance provision
did not meet the statutory requirements].)7
Finlan advances one other theory of an implied acceptance provision in
an attempt to salvage her offers. She singles out the sentence that indicated
7 Given what we can glean from the descriptions of the offers in these
cases, which are admittedly sparse, Finlan’s offers might come close to
mirroring the language used in Boeken, supra, 217 Cal.App.4th 992, which
did not have an acceptance provision. But the origin of the offer language
used in Boeken and in this case might trace back to Berg v. Darden (2004)
120 Cal.App.4th 721, where the court clarified that section 998 offers were
valid so long as the offer was written, clearly “made under section 998 and, if
accepted, will result in the entry of judgment” or a legal equivalent. (Berg, at
pp. 731–732.) But of course, Berg predates the changes to section 998 that
occurred in 2006. As such, Berg’s description of what constitutes a valid offer
can no longer be relied on.
9
her proposed settlement sum could be “paid by said defendant MICHAEL
CHASE and to allow judgment to be entered in favor of said plaintiff . . . .”
As Finlan frames it, this process of “allow[ing] judgment to be entered” falls
into the same category as the valid offer in Rouland, because it necessitates a
judgment in writing that would be signed by counsel.
It is not entirely clear why Finlan takes the position that a judgment
would necessarily be signed by Chase’s counsel. She cites no authority for
such a proposition, and we know of no requirement that a judgment be signed
by the parties.8 Moreover, even if that were a precondition for a judgment,
Finlan’s argument fails because her offer contains no instructions at all as to
the manner of acceptance. The key to Rouland’s holding is that the offer in
that case contained explicit instructions on how to accept—by filing an Offer
and Notice of Acceptance with the trial court—that in turn necessarily
required that the acceptance be memorialized with the signature of counsel.
(Rouland, supra, 220 Cal.App.4th at p. 288.) Here, in contrast, there was no
instruction for acceptance that would produce a document enshrining the
acceptance in writing with counsel’s signature.
In short, a reference to the offeree “allow[ing] judgment to be entered”
in a letter proposing a settlement is not the same thing as providing
instructions that offerees can follow if they wish to accept such an offer.
There were no acceptance provisions in Finlan’s letters and, as a result, we
must reverse the parts of the trial court’s order that were predicated on
Chase’s rejection of a valid section 998 offer.
8 Perhaps Finlan had in mind a proposed judgment that the parties
would prepare and submit to the trial court. (See, e.g., Ironridge Global IV,
Ltd. v. ScripsAmerica, Inc. (2015) 238 Cal.App.4th 259, 263; § 664.6.) In that
case, Finlan’s offer letters could have directed Chase to prepare such a
judgment or sign one that she prepared and provided. They did neither.
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DISPOSITION
The October 26, 2020 postjudgment order on costs and prejudgment
interest is reversed in part with directions to enter a new order (1) granting
Chase’s motion to tax costs insofar as it included Finland’s postoffer costs for
her expert witnesses, and (2) striking prejudgment interest on her award. In
all other respects, the order is affirmed. Chase shall recover his costs on
appeal.
DATO, J.
WE CONCUR:
McCONNELL, P. J.
DO, J.
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